If there was one word to succinctly describe the world of housing right now, what would it be – perhaps unaffordable? That's what it looks like for Redfin's chief economist, Chen Zhao, who said earlier this week: “Affordability is actually the story in the housing market right now.”
in Interview With CNBC Zhao touched on recently released data, which found that home prices rose 6.5% in March from a year earlier, and Redfin's Private datawhich found they were up 7.3% in April from a year earlier as well.
“There doesn't seem to be a lot of relief in sight in terms of housing price growth,” she said. “For the average consumer, what that really means is that as long as inventory is so constrained, which has been the case for the last two years or so, home prices really look like they're going to continue to rise at a rapid rate.”
We are missing approximately two million to seven million homes, according to One estimate. And Mortgage rates The surge from the pandemic lows has dried up existing supply because no one wants to sell their home and give up a low mortgage interest rate for a much higher one in the current environment (where the Fed has raised interest rates multiple times in an attempt to tame inflation). .
This is partly because existing home sales fell to their lowest level in nearly 30 years last year, and are continuing to decline (they Projection Close to 2% on a monthly and annual basis in April). Not to mention, pending home sales were down 7.7% in April compared to March. according to The data was released today, and all regions across the country saw monthly and year-over-year declines in contract signings. It is important to note that inventory levels are better than last year, but still lower than typical spring seasons.
“The impact of rising interest rates throughout April discouraged home buying, even with more inventory on the market,” Lawrence Yun, chief economist for the National Association of Realtors, said alongside Thursday's release. He said the hope is that the Fed will cut interest rates once this year, and that would lead to better conditions, or increased supply, and improved affordability.
In terms of supply (and home values) there is some variation, noted Redfin's Zhao. The Sunbelt is the place everyone seems to be talking about. In the world of housing, right now, who you are can influence your perspective in any given field. As an investor, “you see the most vulnerabilities” in the Sunbelt, because supply is so high that it temporarily halts the rise in home prices and, in some cases, drives down values, Zhao said. Of course, for anyone who wants to buy a home to live in, this is a good thing.
Either way, “the consensus now is that the Fed will hopefully be able to cut by September,” Zhao said. “I think there is some chance that the inflation data that comes out in mid-June or mid-July will be a little better than expected, in which case July will come back to the table…July has the advantage of being a month.” A little far from the election in November.” (he was there Some discussion among economists about the Fed's decision-making process and its independence in an election year).
But if you're a potential homebuyer, the difference between July and September may not matter much. However, “we should expect a slight easing of interest rates in the second half of the year.”
Indirectly, a rate cut by the Fed would lower mortgage interest rates, which as of Latest daily reading It stands at 7.29%, down from the highest level in more than two decades reached in October last year, at just over 8%, but much higher than rates of less than 3% seen throughout the pandemic.
But here's the thing: Increasing supply a little (which is expected to come to the market as mortgage rates fall) won't solve everything. “House prices are at record levels, but the pace of gains should slow as supply increases,” NAR's Yoon said. “However, the likelihood of measurable declines in house prices appears very small.”